Overall U.S. Economy Gains From Immigration,But It's Costly to Some States and Localities

WASHINGTON -- Immigration benefits the U.S. economy overall and has little negative effect on the income and job opportunities of most native-born Americans, says a new report* by a panel of the National Research Council. Only in areas with high concentrations of low-skilled, low-paid immigrants are state and local taxpayers paying more on average to support the publicly funded services that these immigrants use.

"Immigrants may be adding as much as $10 billion to the economy each year," said panel chair James P. Smith, senior economist at RAND Corp., Santa Monica, Calif. "It's true that some Americans are now paying more taxes because of immigration, and native-born Americans without high school educations have seen their wages fall slightly because of the competition sparked by lower-skilled, newly arrived immigrants. But the vast majority of Americans are enjoying a healthier economy as the result of the increased supply of labor and lower prices that result from immigration."

The U.S. Commission on Immigration Reform, a congressionally appointed body, asked the Research Council to examine the effects of immigration on the national economy, on government revenues and spending, and on the future size and makeup of the nation's population. It was not asked to make policy recommendations.

Each year about 800,000 people immigrate legally to the United States. In addition, between 200,000 and 300,000 new illegal immigrants stay in the country each year.In 1990, 43 percent of immigrants came from Latin America and the Caribbean, 26 percent were from Canada and Europe, 25 percent were from Asia, and 6 percent were from other countries.

Immigrant labor allows many goods and services to be produced more cheaply, and provides the work force for some businesses that otherwise could not exist. For example, immigration has helped build and maintain America's textile and agricultural industries. Other businesses that employ many immigrants -- such as restaurants and domestic household services -- would not exist on the same scale without immigrant workers, the panel said.

Most immigrants work in specialized sectors of the economy such as the manufacturing and service industries, and compete primarily for jobs with each other and with Americans who don't hold high school diplomas. Through this competition, in fact, the wages of these native-born Americans may have fallen some 5 percent over the past 15 years. Yet even in local labor markets with high numbers of new immigrants, overall job opportunities and wages for the native-born are not significantly affected by immigration. The effects may be minor because natives who compete directly with immigrants may be moving to other areas, and because immigration brings overall economic benefits to most Americans.

Costs to Taxpayers

The majority of America's immigrants live in six states: California, New York, New Jersey, Texas, Florida, and Illinois. Using data from California and New Jersey, the panel estimated how much immigrant households -- those headed by foreign-born people -- cost state and local taxpayers. This was calculated by subtracting the costs of services those households use -- such as public education, police and fire, welfare, and public health -- from the amount of taxes they pay on an annual basis. These estimates were made before new laws eliminated welfare benefits for legal immigrants who are not U.S. citizens.

In California, where many new immigrants live, each native household is paying about $1,178 a year in state and local taxes to cover services used by immigrant households, the panel said. In New Jersey, which has a more established immigrant population, the calculation is about $232 a year. However, annual estimates of immigrants' impact on state and local taxpayers may be inflated and should not be used to predict the long-term costs of admitting new immigrants, the panel said. These calculations do not indicate how much immigrants and their children will pay in taxes or how they will use public services over their lifetimes.

On an annual basis, new immigrant families receive more in publicly funded services than they pay in taxes, the panel said. Most -- especially those from Latin America -- tend to have more school-aged children and require more educational services than other households. Although immigrants use about the same level of government services as native-born residents, most immigrants pay less taxes because they own less property and have lower-paying jobs.

The panel's long-term estimates indicate that on a national level,the majority ofnew immigrants and their descendants will add more to government coffers than they receive over their lifetimes. The positive fiscal effects of immigration at the federal level are shared equally by all residents across the nation. However, residents of a few states such as California -- with high numbers of new immigrants -- will bear long-term costs that are concentrated at the state and local level of government.

Immigrants and their children will bring long-term benefits for most U.S. taxpayers because -- like most Americans -- immigrants use more publicly funded services in childhood and old age, but they make positive contributions as working adults. In addition, the majority of immigrants pay taxes and add revenue for some services -- such as national defense and interest on the federal debt -- for which they do not impose costs.

The long-term fiscal contributions that immigrants make, however, will vary depending on such factors as education and age of arrival to the United States. Immigrants with higher levels of education will pay more taxes in the long term because they have higher incomes. But immigrants who don't have high school educations and those who areage 50 or older on arrivalmay receive more benefits than they pay in taxes.

Immigrant Jobs and Wages

The wage gap between new immigrants and native workers has grown rapidly in recent decades, the panel said. In 1990, for example, recently arrived male immigrants were paid 32 percent less than native workers; in 1970, new immigrants' wages were 17 percent less. New female immigrants make 22 percent less than native-born women, a gap that has grown by 10 percent since 1970. This wage gap is growing mainly because more recent immigrants -- many of whom are from poor countries in Latin America -- have much lower education and skill levels than most Americans.

New immigrants are more than twice as likely as Americans not to have a high school degree, the panel said. More than one in three new immigrants have not completed high school. As a result, a disproportionate number of immigrants hold the lowest paying jobs in restaurants for instance, or in domestic positions. In 1990, almost half of all new immigrants earned among the lowest wages in the United States.

Historically, the wages of immigrants who entered the country when they were 25 or younger eventually equaled those of native workers after immigrants had been in the work force for about 20 years. However, because new immigrants are coming to the United States with substantially lower education and skill levels and are starting with lower wages, it be may more difficult for them to close the wage gap. In particular, most Mexican male immigrants, who make among the lowest initial wages, have not seen any increase in wages relative to those of native workers even after 20 years in the U.S. work force.

Population Effects

If immigration continues at its present level, the U.S. population will grow to 387 million people by 2050 -- 124million more than today, the panel said. Immigration would account for about two-thirds of this growth. Under current immigration policy, 26 percent of Americans will be of Hispanic ancestry, growing from 27 million to 85 million by the year 2050. About 8 percent will be of Asian heritage, increasing from 9 million to 34 million. In addition, the boundaries between distinct ethnic groups will become increasingly blurred through intermarriage.

Regardless of immigration policy, the number of older people in the U.S. population will continue to grow. The population of the United States age 65 or older is expected to double by the year 2050. Immigration will also increase the number of children in the population, the panel said. Under current levels of immigration, the number of children in kindergarten through eighth grade will increase by 17 million -- from 36.8 million to 53.7 million -- by the year 2050. If the number of immigrants entering the United States were increased by half, the school-age population would grow by 7 percent, the U.S. population over age 65 would increase by about 5 percent, and the number of people older than age 85 would be unchanged.

The study was funded by the U.S. Commission on Immigration Reform. The National Research Council is the principal operating arm of the National Academy of Sciences and the National Academy of Engineering. It is a private, non-profit institution that provides independent advice on science and technology issues under a congressional charter. A committee roster follows.

*Pre-publication copies of The New Americans: Economic, Demographic, and Fiscal Effects of Immigrationare available from the National Academy Press at the mailing address in the letterhead; tel. (202) 334-3313 or 1-800-624-6242. The cost of the report is $55.00 (prepaid) plus shipping charges of $4.00 for the first copy and $.50 for each additional copy. Reporters may obtain pre-publication copies from the Office of News and Public Information at the letterhead address (contacts listed above).

NATIONAL RESEARCH COUNCILCommission on Behavioral and Social Sciences and EducationCommittee on Population